The announcement that so-called "responsible lending laws" are to be scrapped will provide a much needed boost to our economy.
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Federal Treasurer Frydenburg said the move will speed up loan approvals and increase the flow of credit to households and businesses that need it.
The rules were introduced by the Rudd Government in 2009 and strengthened following the Hayne Royal Commission into financial services.
They placed the responsibility on lenders to require borrowers to provide irrefutable proof of their circumstances and ability to service debts.
If they didn't and the borrower defaulted the lender was responsible for an inappropriate loan and may be unable to recover their losses.
Effectively this meant that lenders had to assume that all loan applicants were liars attempting to get loans approved by deceiving the lender.
Borrowers had to provide not one pay slip but several, not one credit card statement but three for each card, not one loan statement but six month's worth for each current loan.
Lenders could not assume a fixed living cost for all (household expenditure measure). They had to assume higher earners spent more on living costs, the 'wagyu and shiraz' assumption.
The laws also caused lenders to stop using any discretion or judgement based on the individual applicant when assessing applications. Loans became even more approved by computer and less by a person.
Banks refused to consider non-standard loans that didn't fit neatly into a specific box. They also stopped doing loans to businesses that carried higher risk.
The silly part about it was that these laws were imposed during a period when bank bad debts and non-performing loans were well below long term averages. Clearly banks were lending responsibly. The laws were never needed.
Banks and other lenders provide a vital service to our economy. Individuals and businesses need access to finance to pursue their goals. Lenders should be allowed to judge freely whether or not to lend to each applicant and at what interest rate.
Scrapping these rules will provide faster access to credit for businesses needing finance to stay afloat during the Covid era. It will save jobs and enable businesses to recover once the crisis is over.
This move will also provide finance for people keen to take advantage of the low borrowing costs to get ahead. Loans for investments will be more readily available. The next few years will see solid growth in asset prices.
Residential and commercial properties, farms, good businesses, shares and managed funds should all rise in value. It's a good time to borrow to invest.
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